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[PODCAST] EU Open Rundown 30th January 2019

  • Asian stocks traded indecisively following better than expected Apple results and ahead of US-China trade talks
  • UK lawmakers accepted Brady's amendment for the backstop to be replaced with an alternative arrangement and accepted Spelman's amendment that expressed objection to a no-deal Brexit
  • The EU remains adamant that the withdrawal agreement or backstop is not up for renegotiation
  • Looking ahead, highlights include, French Prelim GDP, German Prelim CPI, US ADP, FOMC Rate Decision & Press Conference, German Bund Auction
  • EARNINGS: Boeing, McDonald’s, Microsoft, Qualcomm, AT&T, Anthem, Mondelez, Visa, Facebook, PayPal, Tesla, Volvo, Banco Santander, Siemens, Novartis

ASIA-PAC

Asian stocks traded indecisively with the region tentative heading into this week’s key risk events and as participants also digested better than expected Apple results, which only provided brief support to US equity futures after-hours. ASX 200 (+0.1%) and Nikkei 225 (-0.4%) were both subdued although strength across commodities just about kept the Australian benchmark afloat, while Tokyo stocks were weighed by currency effects and uninspiring corporate updates. Elsewhere, Hang Seng (-0.1%) and Shanghai Comp. (-0.3%) declined at the open amid broad weakness in the region and with China Life Insurance shares heavily pressured after it flagged a 50%-70% drop in FY net, although Chinese markets then rebounded off lows amid a non-committal tone ahead of the looming US-China trade talks and after the PBoC injected liquidity for the 1st time in 8 days. Finally, 10yr JGBs were uneventful with prices stuck to within this week’s tight range amid the indecision seen across the region and with an unchanged BoJ Rinban announcement largely ignored.

PBoC injected CNY 50bln via 14-day reverse repos. (Newswires)
PBoC set CNY mid-point at 6.7343 (Prev. 6.7356)

China is expected to present a roadmap on structural reforms to US during this week’s meetings in Washington. (Nikkei)


UK/EU

UK lawmakers accepted Brady's amendment (N) by 317 to 301 votes which requires the backstop to be replaced with alternative arrangement, while lawmakers also accepted Spelman's amendment (I) by 318 to 310 votes which expresses MP objection to a no-deal Brexit by stating that the House of Commons "rejects the United Kingdom leaving the European Union without a Withdrawal Agreement and a Framework for the Future Relationship". However, Parliament rejected the other 5 amendments which were voted on including those which involve delaying the Brexit date. (Newswires)

UK PM May said the majority of members have said they will support a deal with changes to the backstop and that she will seek legally binding changes to the WA. (Newswires) Following the vote, opposition leader Corbyn has finally agreed to meet with UK PM May. (Newswires)

French President Macron’s office said that the divorce deal and backstop is not up for renegotiation and that France will push ahead with preparations for a no-deal scenario, while an EU spokesperson also reiterated Brexit deal and backstop will not be renegotiated but added that the EU is ready to consider a Brexit delay. (Newswires)

UK BRC Shop Price Index (Jan) Y/Y 0.4% (Prev. 0.3%). (Newswires)

Austrian Cabinet will name Robert Holzmann as future Governor of Austrian National Bank on Wednesday who will succeed ECB's Nowotny when his term expires at the end of August, according to government sources. (Newswires)

Italian Deputy PM Salvini is reportedly feeling the pressure to call for an early election this year amid tensions with the 5SM. (Newswires)

US Trade Representative Lighthizer said the US will aggressively fight the EU on olive tariffs. (Newswires)


FX

In FX markets, the greenback remained uneventful with the DXY kept sideways so far this week ahead of the upcoming FOMC meeting, while major counterpart EUR/USD was also rangebound at the 1.1400 handle. GBP/USD attempted to nurse some of the losses seen following the voting in Parliament, where UK lawmakers accepted Brady's amendment for the backstop to be replaced with an alternative arrangement, and accepted Spelman's amendment that expressed objection to a no-deal Brexit. This effectively weighed on the GBP/USD considering the EU have remained adamant the withdrawal agreement or backstop was not up for renegotiation, while lawmakers also rejected the 5 other amendments including those involving delaying the Brexit date. Elsewhere, high-beta currencies were eventually supported by an intraday recovery in sentiment with AUD/USD the outperformer after firmer than expected CPI data which pushed the pair within a whisker of the 0.7200 handle and lifted AUD/NZD to above 1.0500, while USD/JPY was constrained by the indecisive risk appetite and CNY continued its recent strengthening trend after another firmer fix by the PBoC.

Australian CPI (Q4) Q/Q 0.5% vs. Exp. 0.4% (Prev. 0.4%). (Newswires)
Australian CPI (Q4) Y/Y 1.8% vs. Exp. 1.7% (Prev. 1.9%)


COMMODITIES

Commodities marginally extended on recent gains with WTI crude futures above the USD 53.00/bbl amid supply concerns after further sanction threats by the US on Venezuela and with Saudi Arabia also planning further output cuts next month, while the latest API inventory report showed headline crude stockpiles at smaller than expected build. Elsewhere, gold continued to edge higher amid a lacklustre greenback, copper conformed to the upside seen across the complex and Dalian iron ore futures surged to hit limit up in early trade after Vale announced to cut production in the wake of the dam collapse in Brazil.

US API Weekly Crude Stocks (25 Jan) +2.098mln vs. Exp. +3.2mln (prev. +6.55mln). (Newswires)

Saudi Arabia is planning on further cuts to oil production and exports next month, while it believes US can solve its Venezuela oil shortage problem with SPR releases. (WSJ)

US

Treasuries pushed higher following the auction and an overhang of risk factors such as the evolving Brexit scenario, caution ahead of key China trade talks and worries about the shutdown’s impact. The majority of today’s action was seen in the belly of the curve where the 5-year yield fell by 3.1bps, 7-year fell 3.5bps and 10-year fell 3.2bps; the 2-year and 30-year both fell by a more muted c. 2bps. The 5s30s and 10s30s spreads widened by c. 1bps, whereas we saw flattening at the front to belly of the curve. The US Treasury sold USD 32bln of 7-year notes today in what could be considered an average auction, tailing by 0.3bps at a high yield of 2.625%, the lowest since January 2018. Indirect bidders took below the six-week auction average, however, so did dealer bidders and direct bidders took 24.9%, well above the 15.2% average. US T-note futures (H9) settled 9 ticks higher at 121-25.

Fed said policymakers will meet as scheduled on Wednesday despite weather conditions causing a late opening of government offices. (Newswires)

US government official said the White House will not meet next week's deadline for sending 2020 budget proposal to congress and is working on a new timetable. (Newswires)

Apple (AAPL) - Q1 EPS USD 4.18 vs. Exp. USD 4.17, revenue USD 84.31bln vs. Exp. USD 83.97bln. Q1 iPhone revenue USD 51.98bln vs. Exp. USD 52.67bln. Q1 services revenue USD 10.90bln vs. Exp. USD 10.87bln. Co. expects Q2 revenue to be between USD 55-59bln vs. Exp. USD 58.83bln. Co. shares rose in excess of 5.5% after-market. (Newswires)

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